Interactive Investor

Fund spotlight: Diverse Income Trust

25th January 2021 10:30

Liberty Godfrey from interactive investor

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An interactive investor analyst offers a view on one of our new Super 60 fund choices.

The Super 60 fund

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Diverse Income Trust (LSE:DIVI) aims to provide capital growth alongside an attractive level of income. It can invest in UK companies of any size but has a bias towards medium and smaller-sized companies. This focus differentiates the trust from the crowd, as most other UK equity income funds and investment trusts tend to have higher weightings to large companies.

Launched in April 2011, the investment trust is managed by the highly experienced fund manager duo of Gervais Williams and Martin Turner. Both are supported by the wider team at Premier Miton.

The managers aim to select companies with prospects for sustainable dividend growth through scrutiny of the balance sheet, they also assess whether the management team can build real intrinsic value, as well as whether there are low expectations in the share price.

What does it invest in?

The trust’s diversified portfolio consists of around 120 to 140 stocks, resulting in modest weightings and therefore scaled-down stock-specific risk. In turn, this allows the fund managers to find opportunities in areas overlooked by more concentrated mandates. As a result of this, around a third of the portfolio is invested in AIM stocks, and around a quarter in FTSE 100 companies. The bulk of the remaining portion of the portfolio is a split of FTSE 250 and FTSE Small Cap companies.

The trust invests in a broad range of industry sectors in comparison to the FTSE 100, this diversity has been an advantage to the trust when some sectors have struggled. The trust is overweight financials and underweight consumer staples.

Among its top holdings are CMC Markets (LSE:CMCX), a spread betting business, Admiral Group (LSE:ADM), a financial services company, and AO World (LSE:AO.), an electrical retailer.

How it has performed

The trust has seen strong performance over the long- and short-term; since launch in April 2011 the trust has returned 188.8% in comparison to 65% for the FTSE All-Share and 40.4% for the FTSE AIM All-Share to 31 December 2020.

The trust delivers a quarterly dividend, historically yielding around 4%. The team diversifies their income away from FTSE 100 stocks through investing across the spectrum in AIM, small-cap, and FTSE 250 companies. Due to the multi-cap approach, the risk is spread far and wide resulting in the trust being more resilient than rivals when markets fall.

It is interesting to note that there have only been a very small number of dividend cuts throughout the recent pandemic within the trust and the team have managed the dividend growth during this vulnerable time for quoted companies.

The trust typically trades on a small discount, however, the board aim to manage this to trade at around net asset value (NAV). Although the trust has the ability to utilise gearing up to 15%, the managers find that they do not need to take the risk associated with permanent gearing to generate high returns.

  01/01/2020 - 31/12/2020 01/01/2019 - 31/12/2019 01/01/2018 - 31/12/2018 01/01/2017 - 31/12/2017 01/01/2016 - 31/12/2016
Diverse Income Trust Ord 7.81 12.71 -8.39 18.01 1.59
FTSE AllSh TR GBP -9.82 19.17 -9.47 13.10 16.75
FTSE AIM All Share TR GBP 21.75 13.26 -17.12 25.97 16.07
FTSE Small Cap Ex Invest Trust TR GBP 1.65 17.68 -13.80 15.61 12.54

Source: Morningstar, Total returns in GBP. 

Why we recommend it

The trust was a new addition to the Super 60 list following the annual review, which was published in early January. The trust sits within our UK Equity Income, smaller company categorisation. The differentiated approach to UK equity income and the focus on uncovering overlooked areas of the market makes this trust an interesting option for investors. As well as strong performance and an attractive yield, the broad opportunity set in the UK offers the trust potential to invest in both established businesses with strong market positions and newer businesses that have scope for growth.

 

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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